The Partnership - The Making of Goldman Sachs by Charles D. Ellis

Tuesday, June 23, 2009

There are two facets of our global economy which have an enormous impact on all levels of society - financial markets and oil. Both of these industries have experienced massive growth over the last half century that their impact has already played a role in shaping modern history. It is therefore important that I feel comfortable with my own understanding of these subjects even though it can be a tough go at times to read such material. There are plenty of other books I would prefer to be leisurely enjoying on my freetime.

The Partnership is a book about the history of Goldman Sachs - arguably the most successful investment bank in the market. Its rise from a modest American bank into a global superpower of finance is one of the greatest expressions of US-styled capitalism ever witnessed. It will forever make up a part of business history. Even more, several of its CEOs and partners have gone onto important public positions, thus meaning that GS' reach has effects on the political sphere as well.

Even in this time of resentment towards investment banks, there are certain positive traits that Goldman Sachs deserves to be commended for. Its belief in meritocracy, team results, and absence of politicking is commendable. There are lessons to be learned for any business manager in areas such as goal setting for employees, recruiting and running effective meetings.

To fully appreciate the book does require a certain level of financial understanding. I have a basic understanding of the subject and at times struggled to grasp certain concepts being discussed. This leads to another point: what level of understanding is required before you are justifiably allowed to bash the banking sector? Certainly there are plenty (millions) of people who, after having read a handful of articles on the industry since the crisis came into full swing, feel their insights are worthy of getting them on the short list for the Nobel Prize in economics.

I have read several books on the industry, taken a few courses and follow financial papers with regularity and I still do not feel adequate discussing the topic. However, I will make a small observation regarding The Partnership, which was published in 2008 before the crack of Lehman Brothers. Would Ellis have written this book in such a glowing light if he were publishing it in 2009? His praise for the firm rings much more hollow now after seeing how the events in finance have unfolded. Throughout the book he painted a picture of an institution that had made next to no mistakes. The last chapter was written just when first signs of the sub-prime crisis was emerging and he made it look as if Goldman Sachs had if anything profited from the situation. We now know this not to be true.

Goldman Sachs had to convert itself to a holding company so it could gain eligibility to the Federal Reserves emergency lending facilities. Yes, Goldman Sachs has already paid back the US government for lending it received but it did need government assistance to stave off collapse. Adding these points to an additional chapter would have not been enough for this book. It would really require a complete reexamination of the superior, worshiping tone that permeates throughout every page.

Goodbye Germany! For the next few weeks I will be heading to the sunny shores of Italy. In terms of the upcoming summer reads that will be making the journey with me are Bellow"s "Herzog" and Updike's "Couples". I look forward to writing about them when I am back.

9 comments:

Suhail June 23, 2009 at 11:28 PM  

I wonder if the top kahunas at Goldman Sachs ever played Liar's poker...

Thanks for the informative post. I'll be picking this one up to understand the world of finance just a little bit better.

Marie June 24, 2009 at 9:35 PM  

Have you yet talked of Pride and Predujice?

chucksiata June 25, 2009 at 10:54 AM  

Dear Mr. Ellis,

Thanks for giving us your European excursion plans. Next time you blog you might let us know how to make the money to afford the trips.
Don't tell us that you have invested wisely or that you don't use the banking system to your advantage. All corporations including Goldman Sachs are regulated in one form or another. The IRS, the SEC, The Federal Reserve Bank of NY are among the first to come to mind.
The US Government insures reverse mortgages through the auspices of HUD. When these investments become non performing loans, the taxpayers pick up the loss. As for the claim that Goldman Sachs has effective this and that and is a superpower in the global markets is not substantiated at all in your blog. By what measure have they become 'historical' successes? Let's have opinions based on facts and not the excuse that you're not sure if you have enough financial knowledge to make solid opinions.

TallTchr June 27, 2009 at 5:39 PM  

It seems to me the two main jobs of a banker are to lock the vault at night and assess risk. I think our bank executives were vastly overpaid, not just because they were incompetent, but because their riches isolated them from the quotidian realities of borrowing and lending. Anyway, I look forward to your comments on Bellow and Updike, both favorites of mine.

stephanie July 1, 2009 at 7:29 AM  

just wanted to let you and all your followers know i have a similar blog. . .glassonion5.blogspot.com

i put a book a day up with random thoughts, references, reviews, or just stream-of-consciousness ramblings. . .please visit!

glassonion5.blogspot.com

Nels Abrams July 3, 2009 at 4:47 AM  

Count me among the many "armchair CEO's" who could run the financial sector WAY better.

Oh, and get a kick out of Chucksiata's comment. There are always pricks out there who get off on writing rude comments. Laughably, they always include things to indicate their stupidity--in this case, getting your name wrong (pretty basic).

dragonfly July 4, 2009 at 6:20 AM  

Thanks for the interesting review - I wouldn't normally pick this book up, but I'm considering it.

Can't wait to see your take on Herzog. Been awhile since I've read it, might be time for a re-visit.

Enjoy Italy!

P.S. well spoke Nels ;)

Lamar July 10, 2009 at 11:12 PM  

This is a call to everyone to please step outside the right vs. left paradigm. While there are important issues worth debating within this paradigm, all of them will be moot if we do not focus on a much greater issue outside this paradigm. Thomas Jefferson warned of wealth concentrating to such an extent that it threatened the state. Nowadays the media has taught us all very well to ridicule anyone who talks of central banks usurping the power of government. Well now I suppose the media will have to laugh at themselves, as many outlets from Newsweek to the Financial Times of London are openly discussing the creation of a "bank of the world" that will control economic policies of every nation. I invite you to watch this video, which details how this is currently taking place. While it focuses on our current officials' cooperation with these plans, it steps out of the typical political paradigm by highlighting the cooperation of both parties. Please do not look to politicians to protect us. Only we can protect us. And our first step must be to reach out to police and military. Without their cooperation, the global elite won't have the muscle to exercise their will of oppression. Please share this oath-keepers blog with them.

TBlaze July 14, 2009 at 9:23 PM  

Chucksiata -

I don't think Mr. Ellis will be replying to your comment but I will attempt to fill in instead.

1. How do I finance my European travels? Quite simply - I save cash and keep debt to a minimum. I have seen my equity in stocks take a hit but it is only equals approx. 20% of my total liquid assets - not enough to lose sleep over at night. An article I read today by N. Taleb further warns against our debt levels: http://www.ft.com/cms/s/0/4e02aeba-6fd8-11de-b835-00144feabdc0.html?nclick_check=1

2. I do not understand your point on GS being regulated. Please further elaborate.

3. It is not difficult to support the claim that GS became a historical success. Thomas Financial states GS as number 1 in M&A. The book itself, mentions several different departments from commercial paper, to equity research where GS entered the game clearly behind several larger players and after a short while became recognized as the market leader.
The Economist, reviewing the same book claims "When Marcus Goldman, a Jewish immigrant from Bavaria, founded a small commercial-paper dealer in New York in 1869, he hardly could have imagined it would one day become the world’s most envied and profitable investment bank."

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